Skip navigation Scroll to top
Scroll to top

Cryptocurrencies and Saudi Aramco

21 July 2017

Should I allocate some money to cryptocurrencies?

A cryptocurrency is created on the internet using blockchain software for the purpose of enabling payments to be made. At present, there are no central authorities controlling or regulating the currency and transactions may be made anonymously. Consequently, and almost predictably, this has led to a high usage of cryptocurrencies amongst criminal activity. There are said to be over seven hundred cryptocurrencies, one of which called Potcoin, has been set up exclusively to facilitate the legal trade of cannabis. The value of currencies can move very dramatically and profits have been made and, in some cases, monies invested have been lost. The largest currency to date is Bitcoin which has moved up in dollar terms by 200% per annum over the last five years. However, there have been periods within these five years when it lost 80% of its value. So far this year Bitcoin moved up 210% until mid June but then dropped over 30% in just over a month and has since recovered, moving up 21% on Thursday alone. Some have said this form of currency is the future of e-commerce but valuing such a currency is very difficult and buying it is only for the brave.

Personally, I see similarities with companies that existed during the South Sea Bubble of the early 18th Century, some of which were genuine but others less so. It has been said that at this time a company was floated whose purpose was said to be “for carrying-on an undertaking of great advantage but no-one to know what it is”.

I would prefer to stick to more conventional investments with clear cash flows and legal controls.

Does allowing Saudi Aramco to list in London undermine the integrity of the stock market?

Firstly, we should point out that Saudi Aramco has yet to ask for a London listing, however, the Financial Conduct Authority (“FCA”) has launched a consultation that could make it easier for them to do so. The proposal is to create a new premium listing rule for sovereign controlled entities, with relaxed rules on dealing between the company and related parties. The FCA has not explicitly said that this proposal is specifically for the benefit of Saudi Aramco but it would help them to list in London. It is planning an issue in late 2018 and is reported to be considering listing in London or New York. When the Prime Minister visited Saudi Arabia earlier this year the chief executive of the London Stock Exchange went with her. This is important because of the size of the deal. They are only looking to list 5% of the company but the total market capitalisation estimates range from one to three trillion dollars. This means it could be bigger than the whole of the FTSE 100 Index or about ten times the market capitalisation of Royal Dutch Shell. Even the free float of 5% would be one of the largest companies in the index if it was included. In a post-Brexit world this would be a major boost to the prestige of the City of London and the LSE.

Changing the rules to accommodate a single company looks like a dangerous thing to do but it would only apply to a very limited group of companies. It does not undermine the integrity of the wider stock market and it may encourage other companies in a similar position. Abu Dhabi’s state oil company is also planning an IPO next year. It could be seen as an example of the flexibility of the London market rather than its lack of integrity.

 

 

This communication is provided for information purposes only. The information presented herein provides a general update on market conditions and is not intended and should not be construed as an offer, invitation, solicitation or recommendation to buy or sell any specific investment or participate in any investment (or other) strategy. Past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invest. Although this document has been prepared on the basis of information we believe to be reliable, LGT Vestra LLP gives no representation or warranty in relation to the accuracy or completeness of the information presented herein. The information presented herein does not provide sufficient information on which to make an informed investment decision. No liability is accepted whatsoever by LGT Vestra LLP, employees and associated companies for any direct or consequential loss arising from this document.

LGT Vestra LLP is authorised and regulated by the Financial Conduct Authority (FCA).